Scheme to increase retirement savings

Upfront tax is crippling retirement, says the former chair of the Commonwealth Superannuation Schemes Peter Reynolds, who has a scheme to ensure more income in retirement.

In his submission to the Retirement Income Review, Mr Reynolds has called on the government to adopt an asset-based dividend method to increase all retirement balances and government revenue, reports Super Review.

“The upfront tax limits the potential of the super scheme by reducing the superannuation guarantee (SG) to eight per cent of ordinary time earnings before investment (e.g. a $10,000 SG is reduced to $8500). This configuration of taxes reduces the return to individuals and government,” he said.

A more effective system, Mr Reynolds said, would be an annual asset-based fee or dividend of 1.25 per cent on the super pool of funds in accumulation mode.

For example, when taxing individuals at 15 per cent upon deposit of funds, the government currently pulls in tax revenue of around $30 billion a year. A dividend of 1.25 per cent from an asset base of $2.4 trillion (in accumulation mode) would yield the same amount.

“This approach redistributes the tax burden from the earlier years of accumulation to the latter years. In so doing, it enables greater wealth to be created for all participants with the greatest benefit flowing to low-income earners and those with low balances,” he said.

A worker earning $50,000 per year who has had Superannuation Guarantee contributions at 9.5 per cent over 25 years, taxed at 15 per cent, would have a balance of $320,500. With Mr Reynolds’ 1.25 per cent dividend method, that balance would be $359,800.

This is assuming 2.5 per cent inflation and eight per cent compound returns.

The same worker with 25 years of Superannuation Guarantee contributions at 12 per cent, taxed at 15 per cent, would have a balance of $404,800. With the dividend method, that balance would be $454,500.

“The dividend method would increase and stabilise government revenue with a predictable compound growth rate of seven per cent per annum for the next 15 years,” said Mr Reynolds.

He noted it would not only benefit fund members, but would also streamline the system, as the government would only require one calculation per year on the mandated 30 June balance of each super account.

Read Mr Reynolds’ full submission here.

What do you think of this idea? Would you be disadvantaged by it?

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Written by Leon Della Bosca

Leon Della Bosca has worked in publishing and media in one form or another for around 25 years. He's a voracious reader, word spinner and art, writing, design, painting, drawing, travel and photography enthusiast. You'll often find him roaming through galleries or exploring the streets of his beloved Melbourne and surrounding suburbs, sketchpad or notebook in hand, smiling.


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